There Is Hope
Gaming's most important conference, GDC, is in full motion - and the industry looks set to break the doom and gloom cycle of the past two years.
Dear Readers,
I just returned from GDC, the Game Developer Conference, in San Francisco. Every year, the gaming industry's brightest minds across developers, publishers, and ecosystem partners come together to discuss the state of the industry, what levers need to be pulled to reignite double-digit growth, and whether or not San Francisco as a city has cleaned up its act compared to past years' conferences.
On the latter: there were notable improvements compared to when I was in SF the same time last year. Overall, there was less crime, less drugs, and less homelessness - at least it wasn't on full display on virtually every street corner as it was in 2024. There is still too much going on of all of the above, but things are trending in the right direction. The downtown area was buzzing more as people returned to the office, especially over the last two months. Whereas last year, the city's fastest growing and most popular store was "For Lease" (vacated commercial real estate was everywhere), there were a lot more open and busy stores this time around.
It's got a long way to go, but we can start to see, just a tiny bit, why Frank Sinatra wrote this song in 1962:
There's hope for San Francisco - and hope was in the air for gaming as well.
For all the market corrections and challenging news around layoffs and cancelled releases of new games over the past two years, things are starting to look up. Many companies I spoke to are actively hiring new talent. Recruiters confirmed that there has been a notable uptick in hiring activity as well. M&A activity continues to be in full swing, with at least a handful of sizable deals in the making. And a slate of new games is about to see the light of day, led by the much anticipated new Assassin's Creed that launches today (Bonne chance, Ubisoft).
For all the doom and gloom of the past two years, the sentiment was far more upbeat. That doesn't mean that the industry and its players aren't facing obstacles - but the conversations are shifting towards focusing on solutions as to how to address these challenges and reignite strong growth. Here are some of the key themes I discussed with executives across the spectrum of platforms and genres:
Shifting player expectations
The expectations players have for the games they play and what they perceive as a great game are constantly shifting, driven by evolving preferences and needs of those consumers. For studios and publishers to be competitive in the market, keep an existing game growing as well as successfully launch new titles, they have to invest in deeply understanding what players need and desire - and do so ongoingly to anticipate and detect shifts in those patterns to stay ahead of the curve. Players clearly have an elevated baseline for the fidelity of the games they pick up. Another studio is actively researching players' preferences for difficulty, driven by the hypothesis that what players considered to be difficult 5 years ago no longer reflects that. Preferences and needs have evolved, and they constantly do.
To provide a resource into the main drivers of these shifting player expectations, Solsten has just released its annual State of The Player report. The 2025 edition assesses how player expectations have evolved over the last 12 months. It is the largest study of its kind, analyzing close to 360K players and their psychology. Why does the New York Times games offering continue to thrive? Because its bite-sized puzzle games appeal directly to the psychological trait in players that has shifted the most: moderation.
One of my favorite taglines from the report: the death of fun. I highly recommend checking out the full report.
Innovation at the platform level
The industry is ready for innovation on a platform level to unlock new forms of gameplay. Just like the iPhone ushered in the mobile gaming revolution, it's clear that companies are hungry for innovation at the hardware level that allows them to let their creativity manifest itself in entirely new types of games and mechanics rather than using their creativity to optimize within the confines of the platforms we know today. While it's not immediately obvious where the innovation breakthrough on the platform side will come from, there is clearly attention on this from some of the brightest minds in the industry. One company that I believe can play a role here is Discord - not because they would necessarily provide a new hardware device, but because they can integrate games directly into their Discord servers and communities and enable seamless social experiences driven by games across friends and new connections they can make.
The company is collaborating with game developer Mainframe on effectively merging Discord's social tools with Mainframe's game Pax Dei, allowing for friends to join a live gameplay session at exactly the point in time as well as location in the game where people are at that moment. It's the facilitation of seamless, and instant shared social experiences that hold a lot of promise.
Discoverability
Marketing and user acquisition are HARD (if you're a frequent reader, you must think I sound like a broken record at this point. Also, if you are a frequent reader - you're a legend. Thank you!), not only for gaming companies but for every company in every industry. There are a few different reasons here, but the elephant in the room is the concentration of the market into the hands of a few players: Apple and Google on the mobile store side, Google, Meta, and AppLovin on the advertising network / targeting side (to name the most relevant players). The objective for all of these companies is to maximize their revenue - as they should, because they have an obligation towards shareholders. In theory, one would think that this is where the incentives with game developers are aligned. In practice however, they are pretty far apart.
Take AppLovin: any means that would increase the efficiency within its ad network, meaning they can acquire a specific user at lower cost theoretically would result in lower costs for the gaming studio running the ad company in search of those players. But what incentives does AppLovin, or Google, or Meta have to let their clients share in those efficiency gains? None. If the gaming studio paid $10 for a player before, they'll still pay $10 now. All that happens is the companies in the middle increase their margins.
A similar story plays out on the App Stores, just regarding organic traffic. Something like 80% of all organic traffic on the app stores is routed to the top 20 mobile games. Why? Because Apple can confidently predict the revenue it will incur from X number of additional players downloading Monopoly Go. Rather than recommending to players what games might be best and most enjoyable to them, they revert to what's ideal for them. Growth for new games is incredibly challenging if you have to stop at the tollbooth every single time.
What breaks these paradigms is more competition in this space and players coming in that are providing new and alternative ways for people to discover games. Discord is such a company that has potential here. So is Fandom with the roughly 300M eyeballs it reaches. Places that have a sizable community can build new advertising models and allow new content to get discovered more easily, which ultimately results in lower costs for gaming studios and marketers anywhere.
AI
Of course, no conference right now can pass by without AI dominating the conversation. In gaming, it is everywhere. We are clearly in an AI hype cycle, but personally I believe we are still underestimating the potential and the impact AI will have on the business world in general. A lot of marketing executives I spoke to were thrilled about the potential to use GenAI tools like ChatGPT combined with unique audience insights like the ones Solsten provides to get to high quality, highly resonating ad creative in seconds - and then have the team provide the 10% polish needed.
This is just one use case of course. Another exciting one in the realm of gaming are AI community agents that engage directly with players and communities - virtual agents that feel like real human players that facilitate social interactions, recommendations, purchases, and more. The upside for game developers here is massive.
GDC is still going strong for two more days. We can expect a lot more news coming out of this industry in 2025. But there is light at the end of the tunnel.
The hype around AI and especially AI Agents is justified. That is why we will dedicate an entire post to the AI Agent economy and its potential applications to entertainment and business. You don’t want to miss it.